Holt: Risks: US interest rate rise could see capital outflows and pressure on domestic currencies – which would have a knock-on effect on the property markets as interest rates rise. This is especially a risk in Indonesia. However, the region continues to see strong growth and urbanising populations.
Dr Chua: Depending on the market in question, the risks are quite different. In the case of Thailand, the risk rests on the political side. In Manila, the risk is more domestic supply conditions which is quite large in some sectors. Jakarta just saw a rebound and the risks are regional economic conditions and the domestic currency. In Singapore, the risk is on the policy front i.e. whether any measures will be lifted and the large impending supply in the office market.
Sim: We expect ASEAN economies to be in a stabilising mode in terms of both politics and economic reforms. We also expect relatively healthy GDP growth for the ASEAN countries, as well as strong government expenditure on local infrastructure, which will bode well for the continuing urbanisation for most countries in the region, as well as for FDI. The property market is thus well placed to benefit from these factors.
Risk factors may stem from:
- An unexpected hike in interest rates
- Government policies such as cooling measures
- Slower than expected reform in India and Indonesia
Holt: Vietnam, given its property market slowdown, which has lasted seven or eight years, is starting to see more activity – and has recently liberalised regulations for foreign buyers in the residential market. Indonesia, a market which has outperformed over the last five years will face some difficulties – which in turn could lead to more Indonesian capital looking at overseas property markets.
Dr Chua: Jakarta office is likely to stay ahead especially given the strong underlying domestic demand. Bangkok retail is likely to outperform as well given the consumer confidence post junta, although some risks remain. Vietnam on the other hand has been behind the rest of ASEAN in recent years registering only tepid growth. Given the supply condition in Singapore and policy risk, we can expect Singapore office and residential segments/markets to underperform this year.
Sim: While ASEAN looks set for some growth and recovery in 2015, each respective country will have different economy-drivers and thus growth.
The Philippines looks set to benefit from a prospective growth in the BPO sector as a result of the improving US economy. In addition, continued strong repatriation capital is expected to continue to boost the real estate market.
Vietnam is bolstered by strong political willpower, with transportation infrastructure plans in place to boost the connectivity of Ho Chi Minh City. Real estate developments are expected to sprout along the proposed metro line. Laws have also been passed to allow foreign investment to the residential markets. GDP per capita and FDI inflows have been on the rise which bodes well for their real estate markets.
Under a major labour and economic restructuring as well as cooling government measures for the residential market, Singapore is expected to be in adjustment mode with a relatively benign outlook for the economy and its real estate market.
While Thailand recorded some growth in its economy, this growth is expected to continue albeit remaining modest. Tourism and investment figures have shown some strength. While exports recovered y-o-y, soft commodities prices still remain a concern. The deep political divide also may be a barrier for investment confidence.
Holt: Improved business and consumer sentiments speak well for the commercial real estate markets.The SGD, pegged to a basket of currencies – heavily correlated with the USD, will see its currency strengthen as interest rates rise. This could put downward pressure on the property market and encourage policy makers to lift some of the property cooling measures (such as ABSD). Emerging ASEAN economies will see their exports become more competitive, but higher interest rates and capital outflows could negatively impact the countries’ property markets.
Dr Chua: The appreciation of the US dollar is likely to signal a stronger US market which potentially would mean stronger demand for exports from Asia. This may bode well for the general market here in Asia. Of course, the stronger US dollar and overall market have also drawn global funds away from Asia as they seek greener/ higher returns back in the US. This could affect the capital value of assets in markets such as Jakarta, Singapore and Malaysia.
Sim: An appreciating US dollar will have directly positive effects:
- ASEAN economies are mostly export-oriented markets. With the recovery in the US economy, it will boost the trade activities in most ASEAN countries. Demand for logistics will remain solid.
- Improved business and consumer sentiments speak well for the commercial real estate markets.
Holt: Depends on the market. Net oil exporters such as Malaysia are likely to be hit the most, while Indonesia – which had significant fuel subsidies, has benefited by getting rid of these which helps balance the government’s books. Essentially a stronger economy will tend to lead to stronger commercial and residential markets.
Dr Chua: At the moment, the impact is not obvious and we are watching this development very closely. In the worst case scenario, if oil prices fall to a non-sustainable level that affects the industry, we can expect oil and gascentric office markets to be affected. Sim: Lower oil prices are generally positive for global consumers. It is effectively a tax cut that will boost disposable income. Lower oil prices will also benefit non-oil and energy exporting countries which include nearly all of Asia with the exception of Malaysia and Australia. Generally, ASEAN countries which are major oil importers (e.g. Thailand) are expected to benefit from the drop in oil price. In addition, the drop in oil prices has allowed various countries such as Malaysia and Indonesia to mitigate the impact from their decisions to generate revenue or savings from either raising fuel duties or reforming fuel subsidies.o.
APR: There is a trend of low interest rates globally. How sustainable is this and what would be its impact on property markets in ASEAN?
Holt: The normalisation of interest rates will start to happen gradually, even though we continue to see many central banks easing around the world. It is all about the speed at which this is done – i.e. not too fast to seriously and adversely impact economies.
Dr Chua: Low interest rates over the past few years have led to money flowing into the real estate market, resulting in yield compression. Whether this is sustainable or not is subject to many other economic factors. As far as real estate is concerned, as long as the rates do not spike overnight, but rise gradually, the impact on the market will be better managed. Otherwise, it could lead to distress.
Sim: Low interest rates in the region have compressed yields with abundant equity chasing too few assets. This is not expected to be a long-term phenomenon; interest rates are expected to – or are already – inching up slowly. With that, yields are expected to expand to maintain the spread, putting pressure on capital values.
APR: Are cooling measures by central banks and governments to resolve rising property prices the best way to deal with speculative price bubbles or are there other measures that are more effective and holistic?
Holt: Cooling measures – or macro prudential measures to slow price growth, have to a certain extent worked in Singapore and Malaysia although in Singapore’s case, it was really the TDSR that slowed the market. These measures can obviously be successful if properly implemented.
Dr Chua: Assets are hard to identify, some argue that they only exist in retrospect i.e. when the bubble bursts. However there are signs of potential bubbles usually when the price or asset values are higher than fundamentals and market averages. What the government tries to do in this instance is to avoid the negative impact of a potential bubble bursting by regulating or slowing the pace of change in the asset. There are many measures to negate the impact of a bubble and each has its own merit. There is no one hard and fast rule or holistic measure to contain a bubble.
Sim: The exuberance of the property markets is typically driven by the low interest rate environment. Cooling measures are intended to curb this exuberance by imposing taxes on property investment and helping prevent foreign capital from stoking property prices upwards. Also, some measures establish parity in the property market by ensuring the gearing health of the buyers is managed.
The Hong Kong real estate market, more than any of the ASEAN countries, has been fuelled mainly by Chinese investors. This is one of the reasons why the cooling measures there have not been impacted as much as in ASEAN countries, which are still locally dominated.
APR: How would the slowdown in China and the oversupply of properties in China affect ASEAN’s property market?
Holt: Indirectly – more Chinese buyers and developers will look overseas for opportunities – with ASEAN being one of the regions targeted.
Dr Chua: The impact of such a scenario is yet to be understood and is hard to measure. A lot depends on the extent that these ASEAN markets are exposed to Chinese investors. In the event of a decline in the China market, how resilient are these Chinese investors?
Sim: Most ASEAN economies are susceptible to slowing demand from China, and these economies will have to adjust to lower commodity prices in the future as well as possibly lower trade volumes. While ASEAN countries have experienced some increases in Chinese capital investing in real estate, any cutback from Chinese investors is unlikely to cause any adverse pressures on their respective markets. This is because most ASEAN real estate markets are still predominantly bolstered by local and regional developers.o.
APR: Some Chinese developers are descending in a big way in ASEAN, for example, the Iskandar region and Cambodia. How would this shift the dynamics of the property markets in those countries?
Holt: Chinese developers have really internationalised their strategies over the last couple of years looking at major Western and Southeast Asian markets. This is part of a broader trend of developers looking for opportunities overseas – especially from Asia. This could lead to more Chinese investors buying units in these markets – from developers they are familiar with, and from some local developers partnering with Chinese investors in joint ventures.
Dr Chua: These developers have not only reshaped the physical landscape but also the perception of risk and business model. While it has not affected the way local developers are operating, the arrival of these Chinese investors/developers has certainly given the local players reasons to sit up and relook their business strategy.
APR: How will AEC impact the property market in ASEAN? Do you see more opening up to foreign investors especially the frontier markets?
Holt: The AEC, although on paper will be achieved by late 2015, will still face many hurdles – and while the movement towards a common market is happening, many obstacles such as non-tariff barriers will limit its effectiveness. Overall, it is a good initiative which has the potential to boost economic growth across the region. The AEC itself is unlikely to speed up the liberalisation of frontier markets to foreign investors.
Dr Chua: It’s too soon to call. In the long term, this freer flow of labour, capital and investment could only mean net gains for the region. Foreign investors look toward this regional integration favourably which should have some positive impact on the property market. The industrial sector is possibly the first to see the benefit as consumption rises. The office and residential segments in each market are likely to enjoy some positive gains as labour and work rebalances around the region.
Sim: In a nutshell, the AEC is expected to transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and smoother flow of capital. With that, we may expect real estate markets to be traded more freely within this region. Intra-region capital flows are expected to grow accordingly. At the same time, still depending on each respective foreign trade policy, FDIs are expected to improve in the whole region..
APR: Will ASEAN continue to be the fastest rising economy in the world amid challenges in the global economy?
Holt: We are really going through unchartered territories – coming to an end of a prolonged period of ultra-low interest rates – and the normalisation of these could be a bumpy process. Overall however, ASEAN, with 600 million people, a young population and more integration looks well set in the longer term.
Dr Chua: ASEAN has several emerging markets and because of the cost saving strategies and the impact of rising costs in China, we can expect the economic growth in this region to continue.
Sim: ASEAN is expected to be a fastgrowing region. Provided it is not impacted by any natural disasters or a political coup, the intra-regional collaboration between these culturally and economically diverse countries is expected to provide a wide spectrum of investment products that will offer a wide range of risks/returns for the pool of investment monies in the global market. With China being one of the most important partners of ASEAN, the proposed upgrade of the China-ASEAN free trade zone is expected to boost regional peace, development, stability and prosperity.